June 30 a trigger for giving but it is important to do it right

The end of financial year contains a tax sting for many and – combined with a desire to give to causes that make a difference to our communities – can be a trigger for philanthropy and charitable giving.

Recent ATO statistics confirm that Australia continues to be a charitable nation – with Australians donating $3.5 billion in total, with an average donation amount of $770* – it is an issue close to the hearts – and wallets – of taxpayers.

But it is important to do it right, including ensuring that your donation is received by the charity by June 30, says Emma Sakellaris, executive general manager of Australian Unity Trustees.

“With June 30 falling on a Sunday this year it is very important that donations, for which the individual is seeking a tax deduction, are made well in advance of the end of the financial year.

“It is also critical to ensure that the charity has a deductible gift recipient (DGR) status, if you are seeking a tax deduction for the donation.

“While it depends on each individual’s tax position, generally speaking it is possible to receive a tax benefit for a donation of greater than $2 made to a DGR recipient. Individuals who donate by June 30 lock in a tax deduction for their tax return, while also contributing to the work and contribution of the charity of their choice.”

Whilst tax considerations are often a ‘giving trigger’ and the reason why many people make one off donations, milestones such as the sale of a business; receipt of an inheritance; or even a lottery win or similar, also often inspire individuals to consider establishing an ongoing, structured philanthropy legacy, Ms Sakellaris says.

“The intergenerational wealth shift has well and truly commenced in Australia, as the population ages, individuals sell their family homes to transition to independent living, often meaning there is significant funds to establish a family legacy and to ‘give back’ to their communities.

“Individuals selling sizeable family businesses are also keen to establish a family legacy, utilise available tax deductions and also, as they transition to retirement, establish an ongoing purpose and connection to their communities.

“As a result of this wealth we have an increase in the number of charitable foundations being established.

“A sub-fund in a charitable trust can be established with an initial donation of $20,000, and the tax deduction from the initial donation can be spread over five years, while all subsequent donations made to the trust are tax deductible.

“For those who have a more substantial amount to invest – perhaps from a windfall or from the sale of a business – a private ancillary fund (PAF) is an option. As this structure is a stand-alone charitable trust, an initial donation of at least $300,000 is required in order to generate the income required for granting and overall management costs.

“This structure has the advantage of providing individuals with greater involvement with regard to investment decisions and other governance requirements. Again, donations are tax deductible and income generated is tax exempt.

“PAFs can bring significant charitable value into perpetuity and provide a sense of purpose and family connection across multiple generations, into the future,” Ms Sakellaris says.